Businessweek.com put out an article today under its Small Biz section titled “How to sell your business”. We want to draw your attention to the section discussing business appraisal. In summary, the author of this article suggests that the business owner conduct an analysis of their financial statements and an exercise known as “recasting”. Bottom line, this is an adjustment of owner’s salary, discretionary expenses, one-time fees, interest, depreciation and other expenditures. Then, the writer suggests the owner adjust fixed assets to fair market value. Once complete, THEN hire a business appraiser. Huh?
Over at BNET, they are developing a series on the topic of M&A with goal of empowering business sellers and buyers to “Be a Master M&A Negotiator”. We like BNET because they take complex issues and spell them out in layman’s terms making it easy for most to understand and learn. The portal with various resources is here.Â
The Financial Times and Canada.com are at it again and has published a compelling�article�titled “Working out what your firm is worth”��for small business owners and their need to conduct recurring business appraisals.� While some businesses do not need annual appraisals, most privately owned companies do need one at some point in its existence. It is very common for an owner to grossly over value their business based on the blood, sweat & tears they’ve invested over the years to get to where they are today.� While sweat equity is valuable, there are specific indicators a valuator will examine in order to determine “fair market value” of a small business.  A key factor for�the business valuation is what is expected to happen in the future when the existing owner is removed from the equation?� If a small business is heavily dependent on that owner’s reputation, expertise & services it could have a negative influence on future financial successes; thus�devaluing such a business.
As a business owner, do you have a succession plan? If you answered no, please take a moment to read this fantastic article which was featured on Canada.com.
In a nutshell, this piece emphasizes the importance of succession planning and business valuation when the unexpected illness or death of a business owner takes place. In the example used, the owner’s wife was left to keep the business affairs in order amidst competitors trying to buy it for pennies on the dollar once the owner passed accompanied by a number of other stressful events. A business valuation became a life saver to this company and the heirs of the previous owner’s estate.
A CNN Money article hits retirement concerns head on. We’re all well aware now of the growing baby boomer generation and the significant impact it will have on our society. Some of the assumptions, fears and hot topics are successfully addressed in this article.
Some of the key topics covered and explained include:
- Big Nest Eggs
- How to manage your 401K
- Is $1 million enough?
The Washington Post summarizes a recent survey that evaluated Exit Planning and the small business owner. The study was underwritten by Massachusetts Mutual Life Insurance and released by the Center for Women’s Business Research.
Key findings were that 67% of men & women surveyed did not have a sales plan and nearly 50% had never conducted a business valuation. Conclusions from the survey indicate that female business owners are more focused on the future success of their company’s under a new owner based on that buyer’s personality and future vision for the business, than are men.
Starting November 12-15, 2007, a fantastic conference will take place in Cleveland, OH called “The Big Makeover”. It is a spin off of the TV hit “Extreme Makeover: Home Edition” where one lucky business owner will have their entire company reconstructed from top to bottom, bottom to top — FREE! A select group of 250 CEO’s, Presidents and business owners will be invited to Cleveland, OH November 12th – 15th to watch the selected company be completely overhauled, and in so doing, will actively learn how to apply the same techniques and strategies to their own businesses.
If you are a small business owner who’s company is primarily internet-based, especially in eCommerce, trying to determine the value of your web business can often be a daunting and very challenging task. A fundamental question that challenges traditional thinking pertains the tangible and intangible value of a website. For pure play web companies, the website is their building and the internet is their real estate. When a traditional company is sold, often times the building and land go with it. Is web real estate and property being valued in the sale of a web business?
Retiring business owners and representative business brokers need to be made aware of a tremendous opportunity to maximize seller earn-out and reduce capital gains liabilities. A relatively new program, called a Structured Sale Annuity, is a product conforming to two IRS Revenue Rulings (82-122 & 75-457) where a business seller can place any portion of their sale proceeds into a fixed annuity under very flexible terms based on the seller’s retirement needs. The individual can really shape this payout to suit their financial and lifestyle obligations; such as monthly payments over 10-30 years, quarterly or annual payments, recurring payments plus a balloon payment on a specified date, etc. All the while the business seller is gaining higher yields and has significantly reduced his tax liabilities by deferring compensation on an annualized basis. This product converts capital gains tax (if all monies were taken by the seller at closing) into ordinary income tax because monies are distributed through a third party to the individual and reported annually.
Many pundits are indicating we are in a seller’s market as there is lots of investment monies and active entrepreneurs looking to buy existing companies. If you are a small business owner considering the sale of your business, here’s a quick list of 10 essentials to selling your business:
- Commitment to selling - don’t waver on the decision
- Bring in professionals - hire a business valuator & business broker; talk to your lawyer & CPA
